NZD buoyed as USD faces increased selling pressure

Key Movers

The US dollar came under sustained pressure through trade on Wednesday as a backdrop of improved risk sentiment helped drive demand for key major counterparts. The DXY dollar index fell 1% on the day and is now down 3% this week. With global rates falling amid expectations, the Fed will pivot away from its aggressive pace of monetary policy, tightening the USD has suffered sustained selling pressure. The euro blasted back above parity while the pound has powered through £1.16, and the yen has forced a break back toward ¥146. The US dollar has long been over-valued, and the promise of a correction in the pace of rate hikes has markets adjusting expectations. Our attentions turn now to the Fed and next week’s Federal Open Market Committee (FOMC) policy update. While we anticipate a 75-point hike will still be issued, commentary surrounding the pace of future hikes will be critical in shaping near and medium-term direction. Policy makers will be keen to ensure they straddle a thin line between highlighting the need to slow the pace of adjustment while maintaining a hawkish long-run stance.
Our attention turns to the European Central Bank (ECB). The European Central Bank is expected to raise its benchmark rate by 75 basis points. While this move is fully priced, the promise of future hikes toward a more neutral setting will guide direction. We are keenly attuned to commentary and guidance surrounding the pace of future rate hikes. With US 3rd quarter GDP likely to provide a downward shock, a robust and hawkish ECB policy update could fuel further US dollar weakness.